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The Coming Credibility Hammer

There are a lot of credibility “nails” that will either be hammered home or pulled out all together in the coming days, weeks, and months. They run the gambit on this financial house of cards that has been built over the years and currently, there are just too many shingles that have come loose along with siding, cracked foundations, and a host of others. Where credibility not only contends with the structure itself, but also with the so-called “smart crowd” of analysts, advisers, fund managers, media outlets and more. If the coming storm that now appears credible, where it’s made even the staunchest revelers of the status quo appear nervous. Forget about what may, or may not, be showing signs of de-lamination; for things may be about to come completely unglued as well as unhinged.

The Federal Reserve’s Open Market Committee will end a two-day meeting today. What they say as well as don’t say will be parsed over with bated breath and heated keyboards as soon as the it ends with no presser as to parse or mince the details any further. All that one will have is what they currently believe the meaning of the Fed’s version of “is” is. That or Jon Hinsenrath’s now famous near instantaneous rebuttal to what they “really mean” if the market goes in a direction other than the Fed. intended.

The Fed. lost its credibility a long time ago and long time readers are well versed. Anyone with real business acumen or understanding of free market capitalism with all it entails knows the Fed. has remained far too accommodating, and for far too long where much higher consequences are going to be paid in the future, so there’s no reason to drone on. The only issue today is when those prices are to be paid – not if.

Whether or not they should have intervened at all during the original crisis is still a debatable question with valid arguments on both sides. Remaining and expanding that intervention some 7 years is not. The only credible question that now remains is: Just how much of a price will be paid, and can it be afforded? When that bill comes due is still an unknown. Yet rest assured – it will come.

However, the credibility of the media at large along with its subsets such as “the financial media” are also going to face what I feel is an enormous credibility hammer. To give you an illustration of what I’m trying to express I ask you dear reader to answer the following: Who has more credibility? A person, media outlet, investment firm et al that has tried to hammer the point that these markets were not to be trusted as they continued a near vertical assent up nearly 300% from the low? Or, one that has continually scorned the first and told you to grab this party with both hands and enjoy the ride – as the wheels now begin falling off the bandwagon? All while you finally notice even the band itself (i.e., the real economy) was never on the wagon to begin with. Just you, your 401K fund, and what is now coming into view – a cliff at the end of the road/horizon.

This is the situation I believe many are going to find themselves in. All one needs for proof is to open their eyes and look out on that horizon. It’s all they’re coming into clearer view on a near daily basis. Where once the horizon shielded it over its edge is no longer the case. The only way not to see it today – is to look away. Yet, ignoring it doesn’t mean it’s not so: which is precisely what both Wall Street along with its revelers want you to not only think – but believe. This is a perilous diversion with grave consequences in my opinion.

I saw no greater example of this than just Tuesday of this week I was watching a segment on Bloomberg Surveillance™ when I had what is now commonplace for me, that “Wait…what?” moment.

In a discussion about earning and more the conversation turned on the questioning of metrics. The guest Tony Dwyer made his usual argument on why he believes this is such a bull market and so forth. However, it was the defense he gave for his reasoning when he received a little push back from one of the hosts (Vonnie Quinn) in her assertion that it’s easy to beat a bad number in regards to “earnings beats” and the fundamental fact is earnings have not been all that better than tepid, in which she’s dead on.

It was the seemingly perplexed retort that shook me. Mr. Dwyer responded with: “They haven’t been the entire cycle and we’ve had a 300% gain. Look, I’m trying to understand how we keep coming on every quarter, that the earnings are terrible, revenue growth is terrible, this is going to be bad – and we’re up 300%” He added as to reaffirm he still believes double-digit gains just 6 months out from here.

I don’t know Mr. Dwyer and that’s a bold call. However, what I do know is this. Yes, technically he is indeed correct. Yet again, for those who don’t understand how the “markets” have worked over these last 7 years, along with those who have only heard the revelry calls of many a fund managers “And we’re going higher!” It is precisely these within the near future that will get clobbered once the full effect of what has fundamentally propelled these markets that 300% which are now stalling, and sputtering without it.

These markets have demonstrated to be nothing more than HFT fueled short covering, stop hunting, panic rallies out of nowhere to make up for the preceding sell off the day before. And with no fundamentals (i.e., true economic fundamentals not fudged data points) to propel a market above its last high let alone double digits. Along with the only “fundamental” reason in the first place for its rise being the $4+ TRILLION in QE that made it possible has since ended. Going double digits higher from here (let alone in 6 months) seems more like fantasy to my ears than reality. And if it doesn’t and ends up actually reversing? The credibility of anyone who has remotely sounded like the above in my opinion will be not only sanctioned – but shunned. If you want an example of what could develop one needs look no further than China’s current stock market calamity.

In China people were experiencing not only double-digit performance in the year, some experienced triple! And in less than 90 days it all has fallen apart with people not only losing some of their investment. Some have lost all, and some even more because of the leverage. They too were advised or heard across the media as to “buy in” to a “sure thing.” After all, who would have thought there was an issue in China when all you’ve heard from the media channels and more is “China will lead the world out of this malaise.” Yet, now it looks like it may actually drag it all down passing malaise – into outright catastrophe.

People will shun their brokers and advisers going forward (and some will for generations) that argued the reasons to “buy, buy, buy” as will the media that gave their readers nothing more than specious headlines as to soothe concerns rather than pragmatic insights they could have used to help protect themselves. It will be the clarity that comes from years of disillusionment that will have impact on everything going forward. Banks, the media, brokers, advisers, stocks ________(fill in the blank) all of it will change.

This is where as I’ve professed many times in responding to how far these “markets” have risen and why: “I may have been wrong – but it’s been for all the right reasons. And I would rather keep my credibility and argue my reasons why, than take the obvious easy route and buy into what I know to be wrong.” Keeping one’s credibility is hard enough, trying to restore it after you’ve lost it is quite another. I think many like myself are about to gain a whole lot more credibility sooner rather than later which the so-called “smart crowd” stated we didn’t have in the first place – as they lose most if not all of theirs.

Who knows what is yet to come. Or, whether I’m right or wrong in the end is meaningless. However, just the very act that you are reading this is de facto proof at least you took it upon yourself to search either this article or others like it as to shape your own decisions rather than to just believe hook, line, sinker or with cowbells, or buzzers by the so-called “smart crowd” that things were just hunky-dory, and pay no attention to the nay sayers of this wonderful bull market we’re currently enjoying in equities.

Credibility maters, it will matter even more in the near future when there seems none to be had form those who may have lost – or sold theirs.

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